If price action accelerates reaching, let’s say, the upper band of Bollinger, yet RSI is far from overbought conditions, that’s a clear warning the rally could extend above bands. If the rally extends, only after the RSI decides to return from such conditions reentering the upper level (could be 70 or 80 depending the pair traded), while a new candle opens inside the bands, you have the price topping sign and a probable downside price movement ahead.
On the contrary, when price is falling and approaching to the lower band of Bollinger, the oversold conditions coming from the RSI will show us if pair could rebound or not. If the RSI is under 30/20 area, only a new candle opening inside the lower band with the RSI crossing upwards from below in the mentioned area will confirm pair has bottomed and is ready for at least an upside corrective movement.
- Bollinger Bands by Metaquotes Software Corp.
- Relative Strength Index (RSI) by Metaquotes Software Corp.
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